2024 (7) TMI 1062 - AAR - GST

Determination of taxable value under GST - inclusion of value of material and cost of execution work for installation of lines, in the value of supply for determination of taxable value under GST where all such cost are born by the recipient of service and the applicant charge only supervision charges - HELD THAT - In this method, the works contract service supplied in course of electric line installation are neither supplied by nor the consideration for same has been received by applicant. The contract for works contract services is executed between the concerned party and a third-party work contractor. Therefore, the applicant is a stranger to this contract. In a case where the third-party work contractor remains unpaid for the services supplied by him, he can sue only the concerned party not the applicant. There is no obligation to pay on the part of applicant. Hence, the case shall not be covered under section 15 (2) (b) of the CGST Act 2017. UPPTCL is not a supplier of goods and services as per provisions of section 2 (105) of CGST Act, 2017 as the work is being undertaken by the customer itself. There is no relationship between the customer and UPPTCL which can be categorized as that of supplier and recipient except for the services of the supervising the whole work - The work contract services supplied in the course of construction/ dislocation/shifting are neither supplied by nor the consideration for the same has been received by UPPTCL hence there is no supply of works contract services by the UPPTCL. Thus, where the value of materials and cost of execution of work for installation of electric lines are borne by the recipient of service and the applicant charges supervision fees only, the value of materials and cost of installation shall not be included in the value of supply for determination of taxable value under GST and the applicant shall be liable to pay GST only on the supervision charges. GST will be applicable on only supervision charges.

Issues Involved:
1. Determination of the value of supply for taxable value under GST.
2. Inclusion of material and execution costs in the value of supply when borne by the recipient, with only supervision charges levied by the applicant.

Issue-wise Detailed Analysis:

1. Determination of the Value of Supply for Taxable Value under GST:

The applicant, an electricity transmission company, sought an advance ruling to determine whether the value of materials and the cost of execution work for installing electrical lines should be included in the taxable value under GST when these costs are borne by the recipient, and the applicant charges only supervision fees.

2. Inclusion of Material and Execution Costs in the Value of Supply:

A. Legal Provisions and Context:
The applicant is responsible for the transmission of electricity and also undertakes the development of electricity infrastructure as requested by consumers, known as 'deposit works'. There are two modes of executing deposit works:
- First Method: The consumer arranges the materials and hires contractors for installation, while the applicant supervises the work and charges a supervision fee.
- Second Method: The applicant arranges the materials and installation work, and the cost is recovered from the consumer.

The applicant sought a ruling specifically for the first method.

B. Analysis Under GST Law:
- Section 15 (1) of the CGST Act: Defines the value of supply as the transaction value where the supplier and recipient are not related, and the price is the sole consideration. In this case, the price is not the sole consideration as the infrastructure created is handed over to the applicant.
- Section 15 (4) of the CGST Act: When the value cannot be determined under Section 15 (1), it is determined as prescribed in Rules 27 to 31 of the CGST Rules.
- Rule 27 of the CGST Rules: Provides for valuation when consideration is not wholly in money, stating that the value shall be the open market value or the sum total of consideration in money and any further amount in money equivalent to the non-monetary consideration.

C. Specific Findings:
- The applicant supervises the work, charging a fee based on a fixed percentage of the total cost estimate.
- The infrastructure developed by the consumer is under the exclusive possession of the applicant and can be used for other consumers as well.
- The cost of works borne by the consumer constitutes non-monetary consideration to the applicant.
- The total consideration includes the supervision charges, shutdown charges, and the cost incurred by the consumer for executing the deposit works.

D. Conclusion:
The ruling concluded that under the first method, where materials and execution costs are borne by the recipient and the applicant charges only supervision fees, the value of materials and cost of installation should not be included in the value of supply for determining the taxable value under GST. GST will be applicable only on the supervision charges.

Ruling:
The value of materials and cost of execution work for installing electrical lines, when borne by the recipient and only supervision charges are levied by the applicant, will not be included in the value of supply for determining the taxable value under GST. The applicant is liable to pay GST only on the supervision charges.

Validity:
This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, and subject to the provisions under Section 103 (2) of the CGST Act, 2017, until declared void under Section 104 (1) of the Act.

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